Important note

Door re-opened for super NCCs in 2016/17

Strategies

David Barrett
Thursday 29 September 2016

The Federal Treasurer’s announcement on Thursday 15 September 2016 regarding further superannuation reform measures re-opens the door for non-concessional superannuation contributions (NCCs), after more than four months of uncertainty on the issue.

Prior to this announcement, the May 2016 Federal Budget proposal of a $500,000 lifetime cap (taking into account all NCCs made from 1 July 2007) resulted in many financial services professionals and their clients refraining from making NCCs, pending legislation being introduced to, and passed by, Parliament.

However, the 15 September proposals change that position. The new NCC proposals will not be effective until 1 July 2017, so the current NCC rules (ie those which effectively applied prior to the May 2016 Federal Budget announcement) remain in operation throughout 2016/17.

The current rules allow NCCs of up to $180,000 per year and the opportunity for those who are under age 65 at any time in the 2016/17 income year to ‘bring forward’ an additional two years of annual NCC capacity. So, up to $540,000 of NCCs may be contributed before 1 July 2017.

The 15 September proposals reduce the annual NCC limit from $180,000 to $100,000 from 1 July 2017. The bring forward provision will still be available, but the maximum total NCCs will be only $300,000 unless the transitional rules apply. The following example illustrates the general operation of the new rules from 1 July 2017.

Example: operation of the new NCC rules

Sean, whose superannuation balance is $400,000, sells an investment property and makes a NCC of $200,000 in October 2017.

As Sean’s bring forward has been triggered, his remaining NCC capacity is $100,000. If a further NCC of $100,000 is made in 2018/19, no NCC can be made in 2019/20. In 2020/21 Sean’s NCC caps will reset and further NCCs can be made from then.

Year

2017/18

2018/19

2019/20

2020/21

2021/22

Annual NCC cap

$100,000

$100,000

Nil

$100,000

$100,000

Bring forward NCC cap

$300,000

$100,000

Nil

$300,000

$200,000

Actual NCC

$200,000

$100,000

Nil

$100,000

Nil

Remaining NCC capacity

$100,000

Nil

Nil

$200,000

$200,000

A new rule, also to apply from 1 July 2017, will remove eligibility to make NCCs where a client’s total super balance as at 30 June in the previous income year is more than $1.6 million. So for some clients 2016/17 may be their last opportunity to make NCCs.

Macquarie has identified several client groups who may have special interest in 15 September proposals:

clients whose 65th birthday occurs in the period from 1 July 2016 to 30 June 2017

clients who will have more than $1.6 million in super as at 30 June 2017

clients who wish to transfer as much as they can into super as soon as they are able to.

Click on the links below to view case studies and the technical explanation of the issues in each category.

Turning 65 in 2016/17

Clients whose 65th birthday occurs in the period from 1 July 2016 to 30 June 2017

Clients with $1.6 million

The transitional rules

The Treasurer also announced that legislation to implement these measures would be released by the end of this calendar year. Financial services professionals should keep in mind that further changes to these proposals are possible.

More from this author

Head of Macquarie Technical Services. David has 20 years' financial services experience, with expertise in superannuation, taxation and retirement income systems and qualifications in law, mathematics and accounting.

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